Is your local council operating an unlawful Council Tax Reduction scheme? Challenging the Minimum Income Floor through Judicial Review
18 September 2023
This article looks at an issue that was the subject of litigation earlier this year challenging Croydon Council’s Council Tax Reduction (CTR) scheme in relation to disabled self-employed people. That case was settled at court, but the issue remains live in a number of other council areas.
Local councils have a statutory duty to provide some form of CTR scheme (also frequently called ‘Council Tax Support’), to provide financial relief in relation to council tax liability for those considered to be in financial need.
Councils have a relatively wide discretion as to how the scheme should function and to whom they should apply. Applications for CTR will often be a standard part of any benefit check or debt assessment by welfare rights organisations and most advisers will be well aware of the criteria and format of their local CTR scheme.
The CTR scheme must be published and any revisions must be subject to a public consultation. This means that you should be able to access the policy relating to your local scheme, usually available via the council’s website.
Any challenge to a CTR scheme can only be brought by way of judicial review.
Aside from the formal CTR scheme, councils also have a discretionary power to reduce a person’s liability for council tax based on their specific circumstances on a case-by-case basis. (As an aside, this is an underutilised mechanism for maximising client income and dealing with council tax debt)
Croydon’s CTR Scheme: The Minimum Income Floor (MIF)
The primary dispute that arose in this case was Croydon Council’s revision of their CTR scheme to include a Minimum Income Floor (MIF) in 2022.
The MIF concept is taken from Universal Credit (UC). In short, when calculating income for benefits purposes, it assumes that those in self-employment are earning a minimum basic amount, even if they are actually earning much less. In Croydon’s scheme, this figure was £332.50 per week.
This fictional approach to income assessments has the potential for unfair outcomes. However, there are some basic protections built into UC’s MIF framework which prevent the most extreme effects. In particular, the MIF under UC does not apply to those in self-employment who have limited capability to work due to poor health or disability, or those with caring responsibilities, who would not be expected to be in full-time work.
The scheme introduced by Croydon was far cruder. It introduced a slight reduction in the applicable MIF for single parents, but otherwise applied the MIF across the board, even to those who were not required to work and were in receipt of disability benefits.
Judicial review proceedings were brought by Dr Yusuf Osman (represented by Leigh Day’s Kate Egerton, Tom Royston of GCN and Zoe Leventhal KC of Matrix). Dr Osman is self-employed, but his ability to work is significantly limited because he is blind.
Until the introduction of the MIF into the scheme, Dr Osman was not required to pay council tax because he was in receipt of CTR which reduced his liability to nil. This changed with the revision of the scheme, at which point his liability increased to £1179 per year, though the Council applied a reduction under the discretionary scheme which reduced that liability to £625 as a transitional measure.
A letter before action was sent, in response to which the Council further applied the discretionary reduction to Dr Osman, and other similarly affected individuals, to reduce their liability to nil.
However, they did not alter the formal CTR scheme, so a judicial review claim was brought on three grounds:
- Irrationality in adopting the scheme: the Council did not appear to understand the scheme it had introduced or its implications and appeared to think that they were applying the same scheme as applied to UC;
- Breach of s.149 of the Equality Act 2010 (‘Public Sector Equality Duty’): the Council failed to pay ‘due regard’ to the impact of its revision to the CTR scheme on disabled people;
- Indirect disability discrimination (Art. 14 read with Art. 1 Protocol 1 ECHR): in adopting the scheme as a blanket rule without accounting for differences arising from disability, the council engaged in unjustified and unlawful discrimination.
Shortly before the case came to court, the Council amended its MIF policy for 2023-4, to exempt a number of new groups from the MIF. It introduced a disability exception (indeed, a broader one than exists in UC).
That policy change made it clear that Dr Osman and others in his position would not in future years be subjected to Croydon’s MIF. The Council agreed to settle the claim, for £55,000 in costs and £500 damages to Dr Osman.
Advisers should look out for possible avenues for challenge
The importance of this litigation extends beyond the success of Dr Osman in challenging Croydon’s CTR scheme’s application to disabled people.
It is now clear that other councils have introduced comparable MIF policies to their CTR schemes. Evidence obtained in the course of the Osman proceedings suggests that 66 councils out of 309 have incorporated a MIF into their CTR schemes, and as many as 38 councils may be operating schemes in the same way as Croydon.
Advisers should look out for clients who:
- Are in self-employment; and
- Are liable for an unaffordable portion of their council tax; and/or
- Have seen significant increases in their council tax bills as a result of increased liability; and/or
- Are in receipt of a disability-related benefit (i.e. PIP, ESA, or LCW/RA of UC);
- Care for severely disabled adults or children;
- Care for children under 3.
Where advisers come across such clients, they should try to locate the council’s CTR scheme policy document, identify if it contains a MIF and what if any exemptions apply. Such cases may be ripe for challenge.
The MIF is not the only feature of a CTR scheme that may be open to challenge. At the same time as introducing the MIF, Croydon Council also stopped disregarding disability-related elements of means tested benefits in their CTR calculations. This meant that disability payments through ESA and UC would be considered as income for CTR purposes. This was also subject to challenge in these proceedings.
The important takeaway is that the operation of CTR schemes which appears discriminatory or unfair may be open to challenge by way of judicial review, and challenges can bring about substantial change.
Being in council tax debt is a uniquely stressful experience for many. Enforcement (although not criminal in nature) starts in the Magistrates’ Court and receiving a summons causes fear and worry. Liability Orders are granted very easily, giving councils broad and invasive powers of collection. Councils are regularly criticised for aggressive enforcement tactics, overuse of bailiffs, and resistance to affordable payment plans.
CTR schemes exist to ensure that this is not the experience for the most vulnerable and precarious. The risk with the introduction of ill-thought-out and misunderstood MIFs (and the removal of income disregards) by councils to their CTR schemes is that it will be precisely the most vulnerable who suffer.
In Dr Osman’s case, a Pre-Action Protocol letter was enough to convince the council to make substantial changes to the council tax liability of disabled self-employed people in its area (even if the substantive written policy was not changed until shortly before the court hearing). This stands as a reminder that even just the threat of court action can often be enough to make a difference.
 This replaced the previous system of Council Tax Benefit in 2013
 S.13A(2) of the Local Government Finance Act 1992 (‘LGFA 1992’)
 Sch.1A LGFA 1992
 S.66 LGFA 1992
 S.13A(1)(c) LGFA 1992
 Universal Credit Regulations 2013 (‘the UC Regs’), reg.62(1)(b) in conjunction with the Welfare Reform Act 2012, ss.19-21.